Stocks rebound after steep September plunge

U.S. stocks rallied after weeks of brutal losses Monday, capping off the first trading day of October with solid gains across the market.

The Dow Jones Industrial Average closed Monday with a gain of more than 765 points, rising 2.7 percent on the day. The S&P 500 rose 2.6 percent before the closing bell and the Nasdaq composite capped off the day with a gain of 2.3 percent.

Stocks rebounded Monday after weeks of rising recession fears among investors and concerns about the likelihood of steep Federal Reserve rate hikes.

The U.K. government announced Monday it would scrap a proposed series of tax cuts that triggered a meltdown in British financial markets last week. Experts feared the proposed budget, which also included energy subsidies and cuts to public services, would pour fuel on inflation in the U.K. while also leaving poorer Britons without sufficient ways to support themselves during a recession.

Stocks also got a domestic boost after a Monday report from the Institute for Supply Management (ISM) showed a slowdown in manufacturing activity and price pressures — two factors that could lead the Fed to a slower pace of interest rate hikes.

“It is premature to say that the Fed is almost done with tightening, but it seems Wall Street is growing confident that they could be done in December. Investors are starting to doubt central banks globally will remain aggressive with fighting inflation as financial stability risks are growing,” wrote Edward Moya, senior market analyst at investment firm Oanda, in a Monday analysis.

A decline in bond yields — which also reflects expectations of lower interest rates — also helped push stock prices higher. 

“It seems the action in Treasury markets suggests traders are growing confident that the global growth slowdown is starting to drag down pricing pressures,” Moya wrote.

Even so, Federal Reserve officials have warned repeatedly throughout the year that the bank will not ease its plans to hike rates and keep them at elevated levels until they see inflation readings falling steadily.